Sandisk slides into bearish divergence, Wyckoff risk

Sandisk shares dropped 14% on Friday to trade near $1,745, their lowest level since June 11, leaving the stock about 25% lower year-to-date.

The Relative Strength Index fell from a peak near 81 to about 46, a pattern traders describe as bearish divergence. Technical analysts say recent price and volume behavior fits a Wyckoff distribution phase, a pattern in Wyckoff theory that precedes a markdown stage.

The stock remains above its 100-day moving average of $1,285. Market participants cite $2,360 as a key resistance level to watch.

Over the past 12 months Sandisk’s shares rose roughly 4,000% and its market value climbed above $300 billion, making it the top gainer in the S&P 500 during that period.

After Friday’s decline several firms left bullish targets above the current price. Bernstein moved its target to $2,500 from $2,100; Bank of America raised its target to $3,400 from $1,700; Citigroup raised its target to $2,500 from $2,025; Cantor Fitzgerald increased its target to $2,900 from $1,800. Mizuho and Morgan Stanley also raised their forecasts.

Sandisk sells solid-state drives, memory cards and USB flash drives. Contract prices for DRAM rose about 18% in the second quarter and NAND about 15%, slower than roughly 60% gains recorded in the first quarter.

Analysts estimate revenue rose about 335% in the most recent quarter to $8.29 billion and project roughly $19 billion for the current year and about $47 billion the following year.

Industry analysts note that rapid increases in memory prices can spur higher production, which in turn can lead to oversupply and downward pressure on prices. The memory sector has a history of cycles driven by inventory and pricing shifts.

On valuation, Sandisk’s forward price-to-earnings ratio is about 26, compared with roughly 22 for the S&P 500. Traders and technical analysts are monitoring the RSI, volume patterns and key price levels for signs of further downside or a reversal.